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Coal gasification faces an uncertain future

The technology is called IGCC, for integrated gas, combined cycle. It uses coal to generate electricity, while emitting fewer pollutants than traditional coal plants. It also has the ability to capture carbon dioxide produced in power generation.

The Mesaba Energy Project, proposed for northeastern Minnesota, could be one of the nation's premier IGCC demonstrations. But the project is stuck, in a dispute over just what its electric power would cost and who should take the risk if the electricity ends up costing a lot.

“Just when they're ready to start up, carbon legislation could come down the road - and suggest that they are required to immediately capture and sequester a significant portion of the CO2.”

Alex Klein, Senior Analyst with Emerging Energy Research.

It's not the only gasification project on hold. Tampa Electric in Florida just announced it was abandoning plans for a 630 megawatt gasification plant. At least five IGCC projects have been dropped in the U.S. Soaring construction costs are part of the problem.

"There's labor shortages in the construction and engineering markets, as well as the fact that the commodities that are needed to build these plants, like steel and copper, are going through the roof," says Alex Klein, a Senior Analyst with the company, Emerging Energy Research.

Klein says the other problem is carbon regulation - or more to the point, the government may restrict carbon emissions.

"That is a big concern for developers of IGCC projects, because there is a very real possibility that they could begin to build a project - invest several hundreds of millions of dollars in a project to get the steel in the ground, and just when they're ready to start up, carbon legislation could come down the road - and suggest that they are required to immediately capture and sequester a significant portion of the CO2," Klein says.

And while the ability to capture carbon is a prime advantage of IGCC, actually doing it costs money. So does moving the gas and burying it somewhere. Klein says developers are trying to build without really knowing what the government's going to require.

"There is little clarity over how liability, and risk management over any possible leakage of CO2 from the ground would be handled," Klein says. "And also there is too much uncertainty over what the cost incentive would be to capture and sequester CO2 from an IGCC plant."

The 600 megawatt Mesaba Energy project would cost some $2 billion today. That's about twice the estimated cost when it was proposed five years ago.

The present plan doesn't include capturing carbon emissions for a number of years. That will be an expensive addition if carbon limits become law. But that's no reason to slow down, according to Julie Jorgensen, Co-President of Excelsior Energy, the company behind the Mesaba Energy Project.

Julie JorgensenMPR Photo/Bob Kelleher

"If Congress resolves it, and says you have to manage carbon, IGCC is the least cost way to manage carbon out of the whole fossil universe," Jorgensen says. "The day there are carbon constraints, and it's going to cost money to deal with them, this is the cheapest way to do it."

Meanwhile, the project's been stalled since August, when the state's Public Utilities Commission set aside a proposed power purchase agreement between Excelsior Energy and Minneapolis-based Xcel. Xcel says the terms offered wouldn't protect customers from electricity price spikes. But Excelsior officials say they would.

As a further complication, the commission recommends Excelsior try to sell the power to utilities state-wide.

Jorgensen say a neutral third party may be needed to sort it out.

"What we've proposed at the commission is a process that uses an independent evaluator to take the existing power contract - take the issues that have been identified with it, and help us work out a win-win solution to those remaining issues," says Jorgensen.

The PUC takes up Excelsior's case Thursday. Jorgensen says the commission could discuss the idea of an independent evaluator at Thursday's meeting, or it could schedule a hearing on the request.

Despite the regulatory hurdles, and soaring construction costs, Excelsior officials remain optimistic they'll be able to build the Mesaba Energy Project - hopefully starting within two years.